Half of all KiwiSaver hardship withdrawals may be able to be avoided, research says

It should not be made harder to withdraw money from KiwiSaver, but people need support to look at other options, a new report says.

Victoria Stace, senior lecturer in Victoria University faculty of law, was asked by Fincap, the network supporting financial mentors, to look at ways that people who might be considering a hardship withdrawal could be helped to keep their money in KiwiSaver.

Total hardship withdrawals have increased from $65 million in 2016 to $443.6m in 2025.

Stace noted that although hardship withdrawals could provide necessary short-term relief, a withdrawal reduced the money that was available for people in their retirement and could increase their reliance on NZ Super.

"The sharp increase in withdrawals therefore raises questions about whether more can be done to support members experiencing financial hardship while preserving retirement savings where possible."

She said KiwiSaver hardship withdrawals were a symptom of financial stress that people were under.

"We think the current threshold has been set to make it relatively hard to get your money out of KiwiSaver and the system is working as it should. It's just there are more people in extreme need which is why there are more withdrawal applications now."

But she said there were ways that people could be helped to keep money in the scheme. Data from organisations that worked with people in hardship indicated that when people were given help with alternatives, a hardship withdrawal might not be needed in 50 percent of cases.

"These do not involve making it harder to take money out; instead they focus on helping KiwiSaver members explore other options before accessing their KiwiSaver savings. We also recommend that further investigation be done into the possibility of altering the KiwiSaver scheme design to allow sidecar savings."

Stace said there was a general agreement among stakeholders that having a financial mentor involved in the process would help reduce the flow of funds out of KiwiSaver on hardship grounds.

"The law says you have to try every other option [before a withdrawal] but the degree to which that appears to be being done in practice is variable. If a person is going to see a financial mentor and the financial mentor is helping them with their application … it seems they have a better chance of finding some other option. It might be that the financial mentor advocates on their behalf with a lender or steers them into some other option.

"The extreme could be an insolvency procedure. It could be that they are able to restructure their debt in some way so they don't have to take money out of KiwiSaver."

But she said the problem was that mentors did not have the resources to deal with a large number of people wanting help.

"That can take three or more hours of the financial mentor's time and these are people that have other clients to see and they have big, heavy workloads and they're not well-funded."

Stace said she had spoken to Debtfix, which is working with a small number of KiwiSaver providers to help handle their hardship applications.

That could be an option for the wider industry, she said, but there were questions that would need to be answered.

"One, would the providers be prepared to pay for that service? Two, do people lose something in that process because you're no longer going to the local financial mentor who works in your community, who you can see face to face and you can work through all your problems with? It's being handled by more of a faceless organisation.

"There are issues to be worked through. And how would that work in terms of the processing? Would a financial mentor say, 'sorry, I can't handle that particular request, it has to go through the central processing hub'.

"The double handling question needs to be resolved as well. But it does have some attractions in that it seems to me to be quite a neat way and is in fact working well for Debtfix with the six providers that it provides this service for at the moment."

Stace said there also needed to be more consistency between provider processes. They were not all asking for the same information in their application forms.

"There's definitely variation in what providers require from the person who's trying to get their money out… we spoke to quite a few financial mentors and we heard they have different requirements depending on which provider they're dealing with.

"They might have to provide more or less evidence of hardship or specific aspects of the person's situation so that was a frustration for mentors that the process wasn't uniform across different providers. The providers then gather the information from that application process and then put in the formal application to the supervisor."

There was also concern about the practice of paying withdrawn amounts to members without any follow-up or conditions around the use of the money.

"DebtFix said to us, 'we actually follow through. We find out from the person, how did you spend the money? How are you getting on six weeks on?' But I don't think that's uniform."

She said in most cases, once people were given their withdrawal, there were no checks that it was used for the purpose the person had requested it for.

"If there would be a way of ensuring that it actually went to pay off the significantly problem-causing debts, then that, according to some people we spoke to, would be a way of preventing people coming back three months later or six months later and saying, 'hey, I need some more money out'."

Stace said there should be investigation of the idea of a sidecar savings facility in KiwiSaver so that people had an amount that was accessible for emergency.

"There's definitely quite a lot to be discussed around that. Could it work? How would it work? Would it make a difference? How accessible would the sidecar savings be? Who would take it up? Would you have to take it up? Would it be optional? All of those questions need to be worked through, but it is a potentially a way of basically ring fencing part of your KiwiSaver account, say $3000, and saying that's accessible."

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